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“Economics 101” for Job Seekers

Japan Inc’s Terrie Lloyd provides a primer on how the economy connects to job hunting, offering tips on getting the timing right and advice on how trends in the market can help you improve the salary and conditions in your next job.

The economy and general job market

Macroeconomics teaches us that a nation’s employment market lags its growth–in recent years in Japan, this has been by around 6-12 months. While for most people this is simply an intellectual curiosity, if you’re advanced in your career development, i.e., you’re a manager or an IT specialist, then the market cycles will have a strong bearing on your promotions and career moves. Understanding the market means that you can get your timing and approach right, and gain the maximum amount of bargaining leverage as you move up the career ladder.

Even if you’re not well developed in your career yet, understanding the economy may be the key to keeping your job! The reason is that compared to domestic companies, employees in multinationals are much more exposed to the linkages between the global markets, Japan’s financial health, and one’s job prospects. This exposure was clearly emphasized by the staff-cutting conducted by many multinational banks and securities firms, along with Japanese exporters and their foreign vendors, following the global dotcom bust and the punch-up of 9/11.

Although most of the bloodletting took place over a short period, the delay in resuming hiring and the continuing freeze on wage increases lasted for several more years. Those who were let go were typically either in troubled divisions, or they were those people who are vulnerable in a down-turn: newly joined staff, trainees, and underperformers. Clearly, then, this period is proof that the macro effects of the economy are real and if you’re going to take a risk and trade up on a job, you want to make sure that you are jumping into a growing sector and that you have got your timing right so that you’re not last in as the job cuts start.

The good news is that as of writing, in February 2007, the Japanese economy continues to boom. The yen is low for a variety of factors, such as the yen carry trade and consumer speculation in Forex, none of which appear to be problematic to the government. Exporters are doing well enough from the low yen that their trickle-down spending is starting to float subcontractors and other smaller companies in the economy. Now, oh so slowly, consumers are opening their wallets–a sure sign that the economic improvements are robust and not just a temporary phenomenon.

Japan’s GDP, its level of national growth, has been seesawing up and down for the last 12 months, and while it fell from 1.1% annualized for the period April-June 2006 to 0.8% for July- September 2006, recent trade figures show that the October-December 2006 period was probably pretty good, and will probably come in at around 2% or so. It is hard to say where we currently sit in this current economic cycle, now officially the longest since WWII. This writer feels that we are peaking and that the risks of a US slow-down increase monthly.

An aspect of this recovery, which is very different to others, is that perhaps for the first time domestic companies are not sharing the profits with their employees. The Ministry of Finance says that in Q3 of 2006, company profits rose on average by 15.5%. However, the resulting cash flow is being channeled into investment in plant, R&D, M&A and shareholder/director payouts rather than wages. According to an annual survey by the Ministry of Finance, companies capitalized at more than JPY1bn tripled their dividend payments between 2001 and 2005 and doubled sales and bonuses paid to executives. Over the same period, the wages of an average salary man actually fell 6%, although they finally recovered a scant 0.2% in 2006–a small claw-back of the more than 10% lost during the period 1997 through 2005.

The Nikkei newspaper had a good example of just how employees are doing their “hard time”. It pointed out that in January 2007 the monthly salaries of Japanese employees, including overtime and bonuses actually fell 0.6% from the year before–thereby leaving the average employee with a wage gain of just JPY5,500 (US$45) for the whole of 2006.

As the Nikkei wryly commented, “Just enough to buy a case of beer”.

As the Nikkei wryly commented, “Just enough to buy a case of beer”.

It’s not just high profits which should be pushing wages up. The nation’s work force is about to get dramatically smaller as the 6.76m Dankai no Sedai (literally, “cluster generation”) baby boomers retire over the period 2007-2009. This micro phenomenon is creating one of the tightest job markets in the last 14 years. The current ratio of job applicants to open positions is 1:1.06 and a surprising 1:1.89 for university graduates. Further, although it jogged up slightly from 4% in November, unemployment for December 2006 was still at a near 8-year low of just 4.1%.

So what is going on? Are salaries due for a strong upwards surge or are we living in some weird extended spell of wage stasis? Most likely the nation is on the verge of wage inflation and that the current high rate of economic growth will be undercut as a result. Although the Japanese as a people are long-suffering, the current lack of profits trickle-down to salary men is now becoming a political hot potato, and one which the government will not tolerate for long.

Indeed, for those sectors most deeply connected to the export and investment boom, such as banking, wage growth is already biting. According to the Nikkei newspaper, leading retail banks have seen the cost of their mid-career shinkin bank (credit association) hires increase from an average annual salary of JPY4.5m in 2004 to JPY6m last year. That’s an average wage increase of 12.5% a year.

Getting the timing right

For those of us in the foreign sector, record profits by large Japanese companies is generally good news. These large firms are typically manufacturers and exporters, and they are robust purchasers of foreign technology, IP, consulting, finance, and raw materials. If they are healthy and growing, so are their foreign vendors. If you’re in one of these firms, you are probably enjoying some of the best years the company has ever had and so it is easy to imagine onwards and upwards personal growth in your existing company. But remember those cycles. Once the pressure is on the Japanese manufacturers again, ask yourself just how stable your business is going to be. If you’re doing well at the moment, but your sector is not stable, you might want to think about trading up to a job where the downturn will have less effect.

As business continues to be good for foreign firms, the law of the jungle has it that an already chronic shortage of experienced bilingual staff is being exacerbated. This is good for job seekers, bad for hirers, and we're thinking it is likely to set off a mini wages spiral in the foreign company market as well. So if you’re thinking about moving, the timing is probably about as good as it’s ever going to get.

For those stoic souls who may still be working for a Japanese company and don’t know it already, foreign firms in Japan typically maintain their competitiveness by relying on superior people, products/services, IT, and process management to win business. Of these things, people are the resource that companies have least control over, and thus the prices paid for talent are subject to market forces. The general consensus is that foreign multinationals pay up to 20%-30% more than their Japanese counterparts for their staff.

People squeeze

Actually, despite the current labor squeeze, the job market for people working in the foreign sector is perennially a seller’s market, for two main reasons: i) the perceived workload and risk of working for a foreign firm restricts the number of job candidates for a given position, and ii) the language requirement–especially for those looking to climb the career ladder and who will eventually have to speak to counterparts in head office.

The people shortage is highlighting the fact that foreign firms’ value systems sometimes do work in their favor. Take for example one demographic which is not scared of hard work, and instead simply asks for fair treatment and equal opportunity is the forgotten half of Japan’s population–women. Young women in particular are typically discriminated against by omission from promotion opportunities. It is no wonder then, that many give up the idea of working when they become moms, and drop out of the work force all together. This habit is changing, however, and according to the Ministry of Health, Labor and Welfare, women are now flocking back to business jobs, with 3.92m finding jobs versus 3.88m leaving them. This represents a 3.2% increase in the number of hires. The trouble is that when they go back to work, they’re starting at the bottom of the totem pole again.

With a preference to be recognized for their performance, women are finding better opportunities at foreign firms. Recently a Japan Times article highlighted the fact that Merrill Lynch has a female president, 47 year old Izumi Kobayashi, while there is no female in a comparable position at any of the Japanese banks. Kobayashi’s team has very capably turned Merrill around from a major internal crisis in 2000 that was triggered by massive losses on its retail brokerage network. She hasn’t looked back since and this has prompted a number of other foreign securities firms to promote their women in turn.

What opportunities?

A recent survey of recruiters and employers, by this magazine, found that job growth in foreign companies is expanding in all areas for those firms which are vendors to the Japanese major exporters and their downstream suppliers and shareholders. This means such sectors as financial firms, technology, medical, logistics, and luxury goods, with manufacturing tools and raw materials are not far behind. In fact, just about any company that doesn’t target the B2C market of salarymen is doing well! In terms of job opportunities, they run the whole spectrum but in special demand are: sales and marketing, technology and support, finance, compliance, security, HR and administration.

So if the opportunities are there, the task is to improve your skills and experience so that you fit them. This involves career planning and a good place to start is to ask yourself what you want to be doing in 3-5 years time. This can be harder than it sounds, as many people like to grow their careers organically. However, by reading this article and considering how the economy might impact your job, you are already demonstrating that you want to take the “accidental” component out of your working life. So why not go all the way, and actually set a goal and a plan to get there?

Basically if you’re a bilingual and ambitious, recruitment consultants will tell you that the ideal background is a decent degree, 2-3 years with a Japanese firm to get conditioned and familiar with the market, then a transfer to a foreign firm. Be sure to get yourself a secondary skill along with language, such as the types of positions mentioned earlier. A quick and easy way to find out what jobs are hot is to reference the leading bilingual job boards, such as www.daijob.com. You should search those job types you’re either doing now or would be interested in developing into, and note the volume of positions and the types of companies offering them. Remember that you may not find your dream job at your dream employer straight away, so be sure to see if there are smaller and less prestigious companies offering the same positions (in volume) if you need some training in the new role.

Now let’s focus on two high-growth segments of the job market which provide some of the best salary and career opportunities at present: senior bilingual managers for start-ups of large foreign corporations and the IT sector in general.

Companies coming into the market

In the last 24 months, starting mid- 2005, the improving Japanese economy has started to catch the attention of technology, media, fashion, food, and services companies around the world again. After a hiatus of almost 15 years, Japan has returned as a key foreign market to be in and both investors and CEOs are looking at how to get in. As a result, market entry specialists are busy and visits by corporate business development managers to Japan are surging.

During 2006, although it dropped 7.1% year-on-year, Foreign Direct Investment (FDI) remained healthy at around US$30.1bn of foreign funds flowing into new investments. The money went to a wide range of companies, but focused, as in 2005, on buy-outs of Japanese firms ranging from banks and transport, to fashion and supermarkets. Unlike earlier years, in 2006 foreign investors started to experience M&A competition from local players newly flush with cash. Therefore they are having to invest in smaller deals and in earlier stage companies. This is good for those of us looking to be part of a new management team, and represents a great chance for anyone in middle management trying to make the leap to director or even CEO.

One of the main organizations looking after the burgeoning number of smaller businesses coming to Japan (and remember that every one of these companies needs a CEO and senior management team) is none other than the government’s own Japan Export Trade Organization (JETRO). JETRO is very active on the inbound trade side, despite its “Export” name and origins, stated in a recent presentation that it has assisted in more than 300 foreign company entries in the last 24 months.

Likewise, another busy and probably the most successful privately-owned market entry consultancy is Japan Entry. Recently, founder Jack Plimpton told Japan Inc. magazine that his firm has now brought over 100 firms to Japan in its 10-year history, including 23 in just the 12 months between November 2005 and October 2006. So according to JETRO and Japan Entry at least, the market is heating up.

Understanding the opportunities in a foreign start-up

Based on the sheer volume of market entries done by just JETRO and Japan Entry alone, there have been over 180 CEO positions, and 550+ CxO appointments made in the last 12 months. Each one of these was basically independent of the politics and entrenched interpersonal ties that typically surround senior appointments in established companies. Thus they represent an excellent opportunity to “trade up” for someone with appropriate experience and ambition but who is not yet at the CxO level.

To understand how to get into a market start-up at a senior level, it is important to first understand the profiles of companies entering the Japanese market and their needs. Most companies coming in through established market entry consultants have already gone through a round of due diligence by the consulting firm/organization. This means that they have been evaluated by professionals to be ready and viable for the market. Clearly this is good to know, since it reduces the risk of joining, and makes your job easier if the product or service is actually wanted in the market. Further, the companies are likely to be well funded and well prepared for their launch here.

Like all companies, incoming start-ups have a personality, a set of values and business model that can help you decided whether or not they fit your ideals. Generally they can be classified as either high-growth or high profit. The former type will usually possess excellent IP and technology, and have a hard-driving, visionary team, while the latter often relies more on large corporate structure, excellent operational ability, and a strong brand and finances.

The two types of businesses require people with very different skill sets and personal values. Once you know what kind of personality your prospective company has (profit or growth), you can start to understand what will be the most important hiring considerations of a CEO or Asia Pacific Director for Sales, in picking their senior team members for Japan.

For a growth company, the CEO or regional director is probably going to want a proven track record in sales and business development. Thus, if you excel in this area, and are willing to share some of the numbers that you have achieved, you will significantly improve your chances of getting on to the short list of candidates.

On the other hand, knowing that a company is more focused on profits and has a deeper corporate value system, your focus will be more on your credentials, personal achievements and organizational achievements. Things to emphasize in an interview will include your business network, reputation as a leader, continuing education, language skills, and overall knowledge of the market.

The trick is to know yourself and to properly match your personality, experience and skills against the appropriate opportunity.

One important note when considering whether to join a start-up, regardless of which values your target company has, you need to check whether the company is simply planning to set up a liaison office to work with a distributor, or whether it plans to work the market independently, with junior distributors and resellers. Clearly, a liaison office case is going to require you to have more developed negotiation skills, patience and length of experience. If however, the goal is to develop a full-fledged operation, then you will require some serious business building skills. The trick is to know yourself and to properly match your personality, experience and skills against the appropriate opportunity.

Foreign or Japanese CEO?

One of the big questions that many foreign companies entering the Japanese market ask is whether it is better to have a foreign CEO or a Japanese one? While most would agree that in the long-run a Japanese national may make better sense due to the apparent commitment the company would be making in growing local staff (foreigners don’t look local, even if they’ve been living here for 20+ years!).

Most consultants advise their customers that unless they are looking to give out a specific message, the choice falls back to just how much interaction and control head office wants over the Japan office and just which candidate has the better credentials. It can take a while sometimes, but most head office hiring managers eventually come to understand that there are some very well qualified foreign managers operating in Japan. Again, a strong track record speaks volumes to an undecided Asia-Pacific Director of Sales.

Experienced recruiters may recommend a foreign manager, in preference to a Japanese one, from the start if they learn that the Japan office is to be pretty much micromanaged out of the head office. Although there are, of course, some very capable bicultural (not just bilingual) Japanese native managers around, it can be easier at the start of a start-up to have a country manager who can function productively at a global level with head office. More often than not, a start-up CEO has to be “pro- active” in his/her own international organization, working to secure the resources and engineering/product development attention needed to feed into the Japanese market.

On the other hand, those same experienced recruiters will probably recommend a Japanese national from the start if they can see that the head office is reasonably mature in its growth of overseas markets. For such firms, the culture has already moved away from micromanagement to a more distributed and localized model. In this environment, the local Japanese CEO can focus on the local market without having to engage in a lot of head office politics.

IT Specialization

Another sector which is producing an ongoing boom in demand for staff is IT. While by no means a new field, it is one that doesn’t get saturated due to: i) foreign firms use IT as a major point of leverage over their Japanese competitors, providing services and customer data more quickly and efficiently, and ii) competent bilingual IT staff are quickly noticed and promoted into mid-management positions, often resulting in their being moved out of the IT department altogether.

As one senior facilities manager in a foreign firm told us, “Being in IT originally allowed me to touch all parts of the organization, particularly in having to understand its work processes and create solutions to make the work flow more efficient. This eventually allowed me to give input to the business units that fell outside the pure IT space. It was ideal training to bring me into operations.”

In contrast to the high-end discussion we’ve been having for senior managers in foreign start-ups, IT jobs among foreign firms are easier to get and require far less planning. Providing you are bilingual and up-to-date, have strong technical skills in your domain, and have decent interpersonal skills, you have a good chance to being able to land a job within a few days of searching.

However, if you are just getting started in the IT field, or if you want to specialize and insulate yourself from having to migrate from technology to desk management, then planning again becomes important. The process for both beginners and advanced practitioners are somewhat the same: you need to envision a goal, then split up the process of getting there into milestones.

"it doesn’t take much imagination to see that they will become prime targets for cost reductions."

In setting the goals, remember to consider the economy and macro trends, so that you have a better chance of not only being able to do a certain technical thing, but also be one of the few with the foresight to have learned it, and thus get paid more for doing so. This advice may sound obvious, but many do not practice this simple rule, spending their learning time with no specific objective in mind. Thus, by the time these technical people reach 40 years of age or so, they find that by virtue of seniority that they have risen to the top of the cost column for the company, and yet they are still essentially delivering the same services they were doing years earlier. In an economic down-turn, it doesn’t take much imagination to see that they will become prime targets for cost reductions.

Software

If you’re a beginner, your career progression as a software engineer in Tokyo will probably start with testing and or bench coding, then develop outwards with greater concentration in a particular area. In foreign firms, the two clear software standards are Java and open source software in general, and enterprise solutions such as Oracle databases, SAP business systems, and Microsoft development platforms such as .NET (“dotnet”). You’ll find that open source has its biggest fans in smaller and more nimble companies, as well as in the Internet and media space, whereas large corporations prefer standardized applications. In planning your career, ask yourself if you’d like to be in a creative environment, or in a corporate and probably higher paid one.

If you’re more senior, it is good to remember that foreign companies in Japan tend to be following a spec or project conceived at Headquarters. Therefore, there isn’t that much original software development done here. Instead, most people are doing maintenance, technical installation and support, and temporary patch work rather than full systems. The exception to this is where a foreign firm has either taken over or tied up with a Japanese one, and thus the work involves understanding both systems and migrating them into a single solution. If you’re looking to upgrade your job, given the implement-not-build values, project management is probably a more successful career extension than is system architecting.

Hardware

Hardware support beginners usually start on a Help Desk, more so than software people. This starting point requires excellent Japanese and interpersonal skills. From Help Desk the next logical layer of the career “onion” is desktop support, followed by network support. These three layers are pretty much compulsory for all hardware people, simply because the customer, the PCs, the servers, and the network form the core components for any computer network. Typically you should allow about 12-18 months on each layer in order to be able to say that you know the technology well and to be experienced enough to meet commercial demand.

Beyond the basics, the hardware person can go into a number of directions. In Tokyo these are typically: server engineering (servers, storage, etc.), network engineering (hubs and switches, etc.), security, voice and telecomms, data centers and redundant systems, and of course management of IT workforces. Where as the first 3 layers of experience can be learned on the job and with a minimum of paper tests, these later career specializations definitely require some dedicated study time and exam passes. Many of the major Microsoft and Cisco exams can be administered here in Tokyo, even though they are in English. However, if you want to combine an intensive sandwich course with a test, then traveling to Hong Kong or even India is a possibility.

Note that companies typically don’t pay much more for certifications here in Japan, although they may be willing to give a small adjustment if it is pre-negotiated with the boss. Where a qualification really counts is in applying for a new job.

But does the economy really matter?

As a senior manager or an IT engineer, it is easy to get so involved in the day-to-day business that you can forget the macro influences of the outside world. From what has happened in the last 20 years-basically since the nature of the Japanese bubble popping became understood by fiscal authorities around the world, i.e. how economies work and how to stabilize them has become, more than ever, an essential relevance in the formulation of objectives which underpin the day-to-day business.

In a down-turn a company’s first move is to consolidate its sustainable assets, and talent is among the most precious of those. When the pendulum swings it is also among the first commodities to be sought. So, an understanding that the big biorhythm of the global economy is cyclic and inevitable is just one more tool to be used when planning the direction of your advancement and do not be scared to take risks.

For both company and individual, knowing what goods are in demand and where the trend is going and coming from, is the surest way to succeed against the competition and to maximize your bargaining potential. JI